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30% of Americans couldn’t cover a $400 emergency. Here’s how to fix that

Heather PettyDecember 19, 2025 at 9:38 PM

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How to build an emergency fund on any budget (J Studios via Getty Images)

Life has a way of throwing curveballs when you least expect them. With economic uncertainty leading into 2026, stubborn inflation keeping prices elevated and concerns about policy changes affecting everything from health care to retirement planning, many of us find ourselves less prepared for financial emergencies than we'd like to admit.

Nearly 30% of U.S. adults say they can't afford an unexpected expense of $400, according to a recent Empower survey, with close to half saying they have less in emergency savings than they did a year ago. It hits particularly hard for those nearing or in retirement, who may be living on fixed incomes or watching their savings stretch thinner with each passing year.

Building an emergency fund might not feel urgent when you're juggling daily expenses, but having that financial cushion provides critical protection and peace of mind when life inevitably presents unexpected costs. Here's how to build a solid safety net, no matter your budget or circumstances.

Why you need an emergency fund

An emergency fund is money set aside for those times when life gets expensive, fast — like getting hit with a big unexpected bill or losing your job. If you own a house or car, emergency money can help you cover your insurance deductible or pay for unplanned repairs that aren’t covered by insurance. If you’re still working, that money can be helpful for covering an extended leave of absence or gaps in employment.

Any number of unexpected situations can lead to unplanned expenses outside of your usual budget. An emergency fund can help you navigate those situations with less stress — and without having to go into debt or dip into long-term investments.

🔍 Read more: ‘You call that an emergency fund?’ 5 money basics most adults are failing right now

What’s the right amount to save for the unexpected?

Many financial experts suggest having two emergency funds, depending on your circumstances — one for surprise expenses and another to replace loss income:

Emergency expenses. The standard advice is to start with $1,000, but a smarter approach is to save half of your monthly expenses. If your rent and other expenses total $4,000 a month, having $2,000 gives you breathing room when an emergency strikes.

Loss of income. If you’re gainfully employed — especially if you’re the main breadwinner for a family — the rule of thumb is three to six months’ worth of expenses in an emergency fund that can keep your finances afloat after a job loss. If your monthly expenses are $4,000, that's at least $12,000 saved up on the sidelines.

These general guidelines won’t apply to all situations, however. If you’re living paycheck to paycheck, you may not have much to spare. Just keep in mind that every dollar saved provides for stronger financial security when you need it most.

Can an emergency fund be too big?

“More savings, less stress” may sound like the key to surviving an emergency, but you shouldn’t keep more than six months of expenses in an emergency fund. Yes, your fund should be accessible, but even in a high-yield savings account, you’d be missing out on higher yields from long-term investments like stocks, bonds or mutual funds.

Even investing $25 a month can add up to powerful momentum over time. And today's best digital investment platforms can help even beginners manage a healthy portfolio and minimize risk with built-in robo-advisors and automatic dollar-cost averaging.

If you aren't able to resolve your finances after six months, or you need more than you’ve saved, you can always dip into your investments. But in the meantime, your money is earning interest and building your wealth behind the scenes.

🔍 Read more: How I started investing with just $100 — and why you shouldn’t wait

Where to keep your emergency fund

You want your emergency fund to be separate from your day-to-day checking account but easily accessible when you need it — which means it’s not tied up in a long-term investment, like a CD or other holding that can take time to access or charge early withdrawal penalties.

Most traditional banks and credit unions offer basic savings with interest rates averaging a very low 0.40% on your account balance. You won’t make much money with that kind of account, but you can usually start a savings account with just a few dollars, and keeping money in your bank allows you to quickly transfer the money to a higher-yield account later.

Still, you have three main options for your emergency fund that will also earn you decent rates of interest, helping your money to work harder on your behalf:

High-yield savings account. If you’re comfortable with online banking, many digital banks offer high-yield accounts with APYs as high as 3.50% or more. These accounts typically don’t require minimum deposit amounts, maintenance fees or other limitations on what you can earn, with compounding to grow your money faster. And you can open a high-yield account online in minutes.

Money market account. A money market account is a type of high-yield account with competitive interest rates, often with limited checking and debit privileges. But withdrawals may be limited to a set amount annually and the accounts can come with monthly, annual or per-withdrawal fees. To get the best rates, you may need to keep a specific amount in the account, make direct deposits monthly or meet a number of other requirements.

Money market mutual fund. Not to be confused with a money market account, a money market mutual fund puts your money into mutual funds that invest in short-term loans to companies and governments. These loans earn interest over their short term, generating passive income while remaining highly liquid. Keep in mind that money market funds use brokerage accounts, so they don't offer FDIC or NCUA insurance. This means that you could lose money in a market downturn.

🔍 Read more: How much is too much to keep in a savings account?

7 tips to building your emergency fund

Saving money can feel impossible when money's already tight — especially if you're retired or living on a limited income. But here's the thing: Every dollar you saved is a dollar closer to financial security. These basic tips that can help you find a way to build your emergency fund, pay for unexpected expenses and weave your dollars into a strong safety net.

1. Know where every dollar goes

There’s no one-size-fits-all approach to budgeting, but an easy start is creating a list of your income and all of your monthly expenses. Like most people, you might be surprised at the extra money you have available every month.

But whether or not you have a noticeable sum to slip into savings, look for places you can cut back or find cheaper services that will allow you to fund your emergency savings. When you’re ready, choose from popular budgeting strategies that can fit the way you save and spend.

2. Set goals you can actually reach

Your ultimate goal may be to accumulate six months of expenses into an emergency fund. But a $10,000 goal may seem like too high a bar if you can only spare $5 or $10 a month. Setting smaller, more easily reached goals can help keep you motivated and on track — even if things get difficult.

3. Automate your emergency fund savings

One way to make sure your monthly savings makes it into your emergency account is to automate the transfer. Most bank accounts allow you to set up automatic transfers that move over a specific amount into a savings account at a set time each week or month around paychecks or benefit schedules. Some even give you the option to set up “buckets” within your account for budgeting and special savings projects. Think of your monthly contributions to your emergency fund as an automatic payment you’re making to yourself, so you’re not tempted to spend it.

4. Celebrate reaching goals and milestones

Saving is no small feat, so you should celebrate when you reach your goals. Maybe you could indulge in a small luxury you’ve been doing without — or, even better, find a money-free way to celebrate, like an in-home spa night or a picnic lunch in your favorite nature spot. Regardless, make sure it’s something that will help motivate you to keep feeding your emergency fund.

5. Have a plan for windfalls and bonuses

Whether your loved one finally pays back that money you loaned them, you get an unexpected inheritance or tax refund this year, sell something or receive a cash gift, it can be easy to spend that bonus income before you know it’s gone. But if you make a rule that a percentage of any windfall goes into your emergency fund, you'll not only make sure to do something productive with the money, but also reach your next goal — and celebration — a little faster.

6. Check in on your monthly progress

Make an appointment with yourself to check in on how your emergency fund is growing, whether that’s quarterly, annually or every time you reach a new milestone. This can also be a great time to revisit your budget and see if you’re able to increase your contribution to the fund. There’s no shame if you can't — or even if you have to decrease the amount you’re saving, if you’ve been a little too ambitious.

You might consider taking time to shop around for the best savings accounts and highest yields available on the account you keep your emergency fund in.

7. Rebuild your fund after an emergency

The money in that fund is there for when you need it, but you never know when you’ll need it again. Make sure you replenish whatever you used as soon as possible, so you’re ready for whatever comes next.

🔍 Read more: 8 money lessons from the 2008 Great Recession that apply today

When to break the glass on your emergency fund

Only you can decide what counts as an emergency — and you won't always see them coming. Yet you can set some rules for yourself to ensure you don’t misuse the money you worked so carefully to save.

Try making a list of potential emergencies — both the big ones and small — including:

Car repairs

Unexpected medical bills

Dental or vision needs

Rising home insurance or auto insurance premiums

Necessary home repairs

Loss of income or a short income check

Even if the emergency isn't on the official list, that doesn’t mean you shouldn’t use your funds to cover an unexpected financial need. After all, that's what it's there for. You can always start saving again to build that fund back up — this time knowing how much you appreciated the cushion when you needed it.

Getting your fund back on track after after a major expense

Using your emergency fund can feel both relieving and stressful. You're grateful the money was there when you needed it, but now you're facing the task of refilling it up. The key is approaching the task with a clear plan and realistic timeline.

Start small and build momentum. Don't pressure yourself to replace $5,000 overnight. Begin with whatever feels manageable, even if it's just $25 or $50 per paycheck. Small, consistent contributions add up faster than you might expect — and you'll slip back into the savings routine in no time.

Put other savings on hold. If you usually sock away $200 a month in a vacation fund or hobby account, funnel that cash to your emergency fund until it's rebuilt. You can get back to those other goals after your safety net is restored.

Use the 50/50 rule for windfalls. When unexpected money comes your way — tax refunds, bonuses or gifts — put 50% toward rebuilding your emergency fund and use the other 50% for something you enjoy. That way, you're making steady progress without depriving yourself of a little fun.

Tailor your rebuild plan to your situation. If you used the money for a one-time car repair or medical bill, try to rebuild at your normal pace. But if a job loss or income cuts forced you to tip into it, rebuild more aggressively — your risk of another financial hit could be higher.

You should be able to rebuild your fund within 6 to 18 months using these strategies, depending on how much you needed and where you've landed.

🔍 Read more: How to budget with the 50/30/20 rule (and get your money on track)

How to balance debt with your emergency fund

If you have a lot of credit card or other high-interest debt, it may be hard to decide which is more important: paying down your debt or saving for an emergency. Any loan or credit line with a high interest rate adds to your debt every month you don’t pay it down. But not having an emergency fund may push you further into debt.

The answer isn’t easy, but a simple start is a debt payoff strategy like the debt snowball or debt avalanche methods. Each strategy focuses your finances on cutting down your overall debt, with differences coming down to where you apply the rest of your money next — and how you’re best motivated to pay off debt to zero.

Even if you go a different way, a balanced plan should have you setting smaller savings goals and — after you’ve built an emergency fund — paying off your higher interest debts before getting back to savings.

🔍 Read more: Debt consolidation vs. debt payoff vs. debt counseling: What’s the difference?

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FAQs: Saving for emergencies and protecting your money

Learn more about how savings accounts work, including how your money is protected when growing an emergency fund. And see our growing personal finance library to help you save money, earn money and grow your wealth.

Should I keep my emergency savings in a checking account?

No, and for two key reasons. First, your checking account is designed to hold your most accessible cash for everyday expenses, like regular bills or costs of living. You’ll want a separate account for longer-term savings that isn’t as easy to tap into. Also, while some high-yield checking accounts pay out interest on your balance, standard checking accounts offer very low rates when compared to traditional and especially high-yield savings accounts, if at all. Learn how to find and open a high-yield account to safely grow your emergency savings.

Can I use a certificate of deposit to grow an emergency fund?

High-yield CDs offer competitive interest rates that can grow your money faster than a traditional savings account. But it's not a great place for an emergency fund due to withdrawal penalties you'll pay if you need the money before your term matures, and even no-penalty CDs come with limitations and trade-offs. Learn more about the benefits and drawbacks of these timed deposit accounts in our guide to CDs and how they work.

Can I lose money in a high-yield savings account?

Losing your money in a high-yield savings account isn’t likely, especially at banks, credit unions and financial institutions backed by federal insurance of up to $250,000, but you could lose money to common bank fees, low rates and more that can eat into your earnings. Learn more in our guide to the top 6 risks to watch for with a high-yield savings account.

How can I be sure my bank account is FDIC insured?

Most traditional banks and credit unions are FDIC-insured to offer deposit accounts protected by the government for up to $250,000. Look for terms like "member FDIC," "FDIC insured" or "NCUA insured" when comparing your options. If your bank isn’t insured directly, it could partner with a more recognizable FDIC-insured bank to make sure your money and the interest you earn is protected. Learn more about how to confirm your bank is FDIC-insured.

I’ve saved up $10,000. Where’s the best place to put it?

Saving up $10,000 is an impressive milestone that opens up several financial opportunities that can better position you for a more stable financial future. You can put it to work through passive income streams, contribute to growing a retirement fund or pay down high-interest debt. See our guide to the five smartest moves to make with your $10,000.

About the writer

Heather Petty is a finance writer who specializes in consumer and business banking, personal and home lending, debt management and saving money. After falling victim to a disreputable mortgage broker when buying her first home, Heather set on a mission to help people avoid similar experiences when managing their own finances. Her expertise and analysis has been featured on MSN, Nasdaq, Credit.com and Finder, among other financial publications. When she's not breaking down the complexities of finance, she's a young adult mystery writer of an internationally acclaimed series — and counting.

Article edited by Kelly Suzan Waggoner

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